You are reading this because of the long, steady decline in nominal and real interest rates on all kinds of safe investments, such as US Treasury securities. The decline has created a world in which, as economist Alvin Hansen put it when he saw a similar situation in 1938, we see “sick recoveries… die in their infancy and depressions… feed on themselves and leave a hard and seemingly immovable core of unemployment…” In other words, a world of secular stagnation. Harvard Professor Kenneth Rogoff thinks this is a passing phase—that nobody will talk about secular stagnation in nine years. Perhaps. But the balance of probabilities is the other way. Financial markets do not expect this problem to go away for at least a generation.
Eight reinforcing factors have driven and continue to drive this long-term reduction in safe interest rates:...
The natural response to this secular stagnation is for governments to adopt much more expansionary tax and spending (fiscal) policies. When interest rates are low and expected to remain low, all kinds of government investments—from bridges to basic research—become extraordinarily attractive in benefit-cost terms, and government debt levels should rise to take advantage of low borrowing costs and provide investors the safe saving vehicles (government bonds) they value. ..
Critics of Summers’s secular stagnation thesis miss the point. Each seems to focus on one of the eight factors driving the decline in interest rates and then say that factor either will end soon or is healthy for some contrarian reason.
Since the turn of the century, the North Atlantic economies have lost a decade of what we used to think of as normal economic growth, with secular stagnation the major contributor. Only if we do something about it is it likely that in nine years we will no longer be talking about secular stagnation.
John Taylor provides a couterargument (I chose to highlight one over the other based upon my agreement with the arguments):
Studying advanced mathematics: the potential boost to women’s career prospects: The university gender gap has been reversed in many countries in recent years, with greater participation among young women than among young men. Yet women remain underrepresented in high-powered and highly paid careers as chief executives and, more generally, in finance and business, and in science, technology, engineering and mathematics (STEM) fields.
Our research assesses three potential explanations for this inequality:
First, are the labour market rewards for advanced mathematical skills lower for women than for men?
Second, are women less talented than men in terms of mathematical abilities?
Third, does the way we promote and teach mathematics in schools drive away talented young women?
The answers to these questions are: no, no, and yes! In particular, we show that restrictive course bundling in high school constitutes a barrier for the mathematical talents of young women. ...
Why Dodd-Frank’s orderly liquidation authority should be preserved: The collapse of the investment bank Lehman Brothers in September 2008 was perhaps the defining event of the financial crisis. Lehman’s bankruptcy, followed by the near-collapse (save for government intervention) of the insurance company AIG, greatly intensified the fear and panic in markets, bringing the financial system and the economy to the brink of the abyss.
These events, including the government’s response, remain controversial. What should not be controversial is that ordinary bankruptcy procedures were entirely inadequate for the situation. The bankruptcy judge in the Lehman case—required, by law, to focus narrowly on adjudicating creditors’ claims against the company—had neither the tools nor the mandate to try to mitigate the effects of the failure on the financial system or the economy. The Fed, FDIC, and Treasury used the powers available to them, often in ad hoc ways, to try to preserve broader stability. But these agencies likewise lacked a framework for dealing systematically with failing financial giants.
The architects of the Dodd-Frank Act, which reformed financial regulation after the crisis, recognized that—in order to make the financial system safer and eliminate future taxpayer-funded bailouts—a better approach was needed. The first two sections, or titles, of the bill aimed to do just that. Title I extended the ordinary bankruptcy framework to better accommodate the complexities of large, interconnected financial firms. It also required large bank holding companies to submit to their regulators plans for how they could be successfully resolved in a crisis (“living wills”). ...
Jumping ahead to the conclusion:
...Conclusion Recent experience has taught us that the uncontrolled collapse of a systemically important financial firm can do enormous damage to the broader financial system and the economy. The Dodd-Frank Act modified bankruptcy law to better accommodate large, complex financial firms, but also wisely provided a backstop framework—the Orderly Liquidation Authority of Title II—that can be invoked when overall financial stability is at stake. Critically, the OLA draws on the expertise and planning of the FDIC and the Fed. The OLA is not a bailout mechanism, since all losses are borne by the private sector. The government can provide temporary liquidity under OLA (as it probably would have to do under Title I, as well), but not permanent capital. Taxpayers are fully protected.
To be sure, controversies remain over how effective in even a Title II resolution would be in the context of a significant financial crisis. Still, drawing in particular on the FDIC’s decades of experience in dealing with failing banks, a good bit of progress has been made. The tools provided by Title II are a significant advance over what was available during the recent crisis.
Have we ended bailouts? Current lawmakers can’t bind future legislators, and we can’t guarantee that a future administration and Congress, fearful of the economic consequences of a building financial crisis, won’t authorize a financial bailout. But the best way to reduce the odds of that happening is to have in place a set of procedures to deal with failing financial firms that those responsible for preserving financial stability expect to be effective. That’s what the OLA is intended to provide.
"...an outraged populace can and must push back...":
The Uses of Outrage, by Paul Krugman, NY Times: ...Mr. Trump is clearly a would-be autocrat, and other Republicans are his willing enablers. Does anyone doubt it? And given this reality, it’s completely reasonable to worry that America will go the route of other nations, like Hungary, which remain democracies on paper but have become authoritarian states in practice.
How does this happen? A crucial part of the story is that the emerging autocracy uses the power of the state to intimidate and co-opt civil society — institutions outside the government proper. The media are bullied and bribed into becoming de facto propaganda organs of the ruling clique. Businesses are pressured to reward the clique’s friends and punish its enemies. Independent public figures are pushed into collaboration or silence. Sound familiar?
But an outraged populace can and must push back, using the power of disapproval to counter the influence of a corrupted government.
This means supporting news organizations that do their job and shunning those that act as agents of the regime. It means patronizing businesses that defend our values and not those willing to go along with undermining them. It means letting public figures, however nonpolitical their professions, know that people care about the stands they take, or don’t. For these are not normal times, and many things that would be acceptable in a less fraught situation aren’t O.K. now.
For example, it is not O.K. for newspapers to publish he-said-she-said pieces that paper over administration lies, let alone beat-sweetening puff pieces about Trump allies. It’s not O.K. for businesses to supply Mr. Trump with photo ops claiming undeserved credit for job creation — or for business leaders to serve on “advisory” panels that are really just another kind of photo op.
It’s not even O.K. to go golfing with the president, saying that it’s about showing respect for the office, not the man. Sorry, but when the office is held by someone trying to undermine the Constitution, doing anything that normalizes him and lends him respectability is a political act.
I’m sure many readers would rather live in a nation in which more of life could be separated from politics. So would I! But civil society is under assault from political forces, so that defending it is, necessarily, political. And justified outrage must fuel that defense. When neither the president nor his allies in Congress show any sign of respecting basic American values, an aroused public that’s willing to take names is all we have.
The Real Test for the Republican Health Care Plan: The Republicans’ rallying cry on health care reform is that the marketplace – relying on the forces of supply and demand – is the best way to run our healthcare system. Government involvement in health care interferes with the magic of markets and makes us all worse off.
The problem with this argument is that markets for health insurance are subject to significant market failures. Without regulatory intervention to fix these problems the market system will not provide what the market systems promises, widely available health care at the lowest possible price. ...
Interestingly, despite their public rhetoric Republicans seem to recognize that these features will be needed in whatever health care reform package they put forward, assuming they can eventually agree on a plan. ... So far, however, although there has been evolution, the proposal is still bad news for those with low incomes and – surprise! – it is very beneficial to those with considerable means. ...
I met Arrow just once, at a Stanford conference in April 2008 that he and Matt Jackson jointly organized. While everyone else was seated around the outside of a large ring of tables, Arrow was on the inside, directly in front of the speaker. He was 86 at the time.
I was first up, presenting an early version of a paper with Sam Bowles and Glenn Loury on group inequality. Arrow interrupted me within the first couple of minutes – not aggressively at all, just seeking clarification about the information structure. Then, during a coffee break after the talk, he asked if I’d read a piece by Millicent Fawcett on gender wage inequality, published in the Economic Journal in 1892. That’s not a typo – he really meant 1892. I confessed that I hadn't.
Arrow said that Fawcett’s work was extensively discussed in a 1922 presidential address by Francis Edgeworth, but while many were familiar with the Edgeworth lecture, few had bothered to read Fawcett herself.
It’s true. Edgeworth mentioned “Mrs. Fawcett” seven times in his address, and cited three separate pieces by her. His lecture was on “Equal Pay to Men and Women for Equal Work,” and one of papers he referenced was “Equal Pay for Equal Work,” published by Fawcett in 1918. Here’s how the latter begins:
I didn’t realize it at the time, but Dame Millicent Garrett Fawcett was every bit as remarkable as Edgeworth and Arrow, and economics was the least of her accomplishments. I imagine that Arrow saw in her a kindred spirit.
I remember like yesterday the moment when Kenneth won the Nobel Prize in 1972. Paul Samuelson—another Nobel economist and, as it happens, also my uncle—hosted a party in his honor, to which I, then a sophomore at MIT, was invited. It was a festive if slightly nerdy occasion.
As the night wore on, Paul and Kenneth were standing in a corner discussing various theorems in mathematical economics. People started leaving. Paul’s wife was looking impatient. Kenneth’s wife, my aunt Selma, put her coat on, buttoned it and started pacing at the door. Kenneth raised something known as the maximum principle and the writings of the Russian mathematician Pontryagin. Paul began a story about the great British mathematical economist and philosopher Frank Ramsey. My ride depended on this conversation ending, so I watched alertly without understanding a word.
But I did understand this: There were two people in the room who had won Nobel Prizes. They were the two people who, after everyone else was exhausted and heading home, talked on and on into the evening about the subject they loved. I learned that night about my uncles—about their passion for ideas and about the importance and excitement of what scholars do. ...
Death and Tax Cuts, by Paul Krugman, NY Times: Across the country, Republicans have been facing crowds demanding to know how they will protect the 20 million Americans who gained health insurance thanks to the Affordable Care Act... And after all that inveighing against the evils of Obamacare, it turns out that they’ve got nothing. ...
After years to prepare, Mr. Ryan finally unveiled what was supposedly the outline of a health care plan. It was basically a sick joke: flat tax credits, unrelated to income, that could be applied to the purchase of insurance.
These credits would be obviously inadequate for the lower- and even middle-income families..., so it would cause a huge surge in the number of uninsured. Meanwhile, the affluent would receive a nice windfall. Funny how that seems to happen in every plan Mr. Ryan proposes.
That was last week. This week, perhaps realizing how flat his effort fell, he began tweeting about freedom, which he defined as “the ability to buy what you want to fit what you need.” Give me consumer sovereignty or give me death! And Obamacare, he declared, is bad because it deprives Americans of that freedom by doing things like establishing minimum standards for insurance policies.
I very much doubt that this is going to fly, now that ordinary Americans are starting to realize just how devastating loss of coverage would be. But for the record, let me remind everyone what we’ve been saying for years: Any plan that makes essential care available to everyone has to involve some restriction of choice. ...
So yes, Obamacare somewhat restricts choice — not because meddling bureaucrats want to run your life, but because some restrictions are necessary as part of a package that in many ways sets Americans free.
For health reform has been a hugely liberating experience for millions. ...
So why do Republicans hate Obamacare so much? It’s not because they have better ideas; as we’ve seen..., they’re coming up empty-handed on the “replace” part of “repeal and replace.” It’s not, I’m sorry to say, because they are deeply committed to Americans’ right to buy the insurance policy of their choice.
No, mainly they hate Obamacare for two reasons: It demonstrates that the government can make people’s lives better, and it’s paid for in large part with taxes on the wealthy. Their overriding goal is to make those taxes go away. And if getting those taxes cut means that quite a few people end up dying, remember: freedom!
10:15 am Daniel Garcia-Macia, International Monetary Fund Chang-Tai Hsieh, University of Chicago and NBER Peter Klenow, Stanford University and NBER How Destructive is Innovation? Discussant: Andrew Atkeson, University of California at Los Angeles and NBER
11:30 am George-Marios Angeletos, Massachusetts Institute of Technology and NBER Chen Lian, Massachusetts Institute of Technology Forward Guidance without Common Knowledge Discussant: Kristoffer Nimark, Cornell University
1:30 pm Barney Hartman-Glaser, University of California at Los Angeles Hanno Lustig, Stanford University and NBER Mindy Zhang, University of Texas at Austin Capital Share Dynamics When Firms Insure Managers Discussant: Brent Neiman, University of Chicago and NBER
4:00 pm Michael Gelman, University of Michigan Yuriy Gorodnichenko, University of California at Berkeley and NBER Shachar Kariv, University of California at Berkeley Dmitri Koustas, University of California at Berkeley Matthew Shapiro, University of Michigan and NBER Dan Silverman, Arizona State University and NBER Steven Tadelis, University of California at Berkeley and NBER The Response of Consumer Spending to Changes in Gasoline Prices Discussant: Arlene Wong, Federal Reserve Bank of Minneapolis
Whom to Listen to in the Fed Minutes: When it comes to the meetings of the Federal Open Market Committee, not all central bank policy makers are created equally. There are “participants” -- all the policy makers in the room -- and there are “members,” those who have a vote. It is important to keep this distinction in mind when reading the minutes of the FOMC meetings -- especially because many of the more hawkish members of the Fed are participants, not members.
Justifying Health Insurance: Recent discussions about revising or replacing the Affordable Care Act (ACA) raise philosophical questions about the rationale for having a health insurance system. Among these philosophical questions are the extent to which such insurance should be compulsory, and, relatedly, the extent to which the cost of compulsory insurance should depend on risk and ability to pay. As lawmakers continue to debate the path forward for health policy, it is helpful to review the economic and moral justifications for health insurance.
From a utilitarian, or “welfare economics,” perspective, the main purpose of insurance is redistribution. Insurance redistributes money collected from a broad group to those who suffer some misfortune that can be mitigated with money, such as a treatable illness. Those who suffer such misfortunes find greater utility from the money than those who pay premiums but have no misfortune, so this redistribution increases total utility.
An increase in total utility also justifies other forms of redistribution. ...
How the Fed's Rate Hikes Might Play Out: The U.S. economy is poised to deliver on the Federal Reserve’s economic forecast for this year. That means a baseline outlook for three interest-rate increases remains in play -- though not the way market may be anticipating. Think of it as two rate hikes, one each in June and December, with an option for a third in September.
Unemployment versus Underemployment: Assessing Labor Market Slack: The U-3 unemployment rate has returned to prerecession levels and is close to estimates of its longer-run sustainable level. Yet other indicators of slack, such as the U-6 statistic, which includes people working part-time but wanting to work full-time (often referred to as part-time for economic reasons, or PTER), has not declined as quickly or by as much as the U-3 unemployment rate.
If unemployment and PTER reflect the same business-cycle effects, then they should move pretty much in lockstep. But as the following chart shows, such uniformity hasn't generally been the case. In the most recent recovery, unemployment started declining in 2010, but PTER started to move substantially lower beginning only in 2013. The upshot is that for each unemployed worker, there are now many more involuntary part-time workers than in the past.
Regarding the above chart, I should note that I adjusted the pre-1994 data to be consistent with the 1994 redesign of the Current Population Survey from the U.S. Bureau of Labor Statistics (see, for example, research from Rob Valletta and Leila Bengali and Anne Polivka and Stephen Miller ). This adjustment amounts to reducing the pre-1994 number of PTER workers by about 20 percent.
The elevated level of PTER workers has been most pronounced for workers in low-skill occupations. As shown in the next chart, PTER workers in low-skill jobs now outnumber unemployed workers who left low-skill jobs. Prior to the most recent recession, low-skill unemployment was always higher than low-skill PTER.
The increase in PTER workers is also mostly in the retail trade industry, as well as the leisure and hospitality industry, where low-skill occupations are concentrated. The PTER-to-unemployment ratio for the goods-producing sector (manufacturing, construction, and mining) has remained essentially unchanged. In those industries, unemployment and PTER move together.
Some researchers, such as our colleagues at the San Francisco Fed Rob Valletta and Catherine van der List, have argued that the increase in the prevalence of involuntary part-time work relative to unemployment suggests the importance of factors other than overall demand for labor. Among these factors are shifting demographics (a greater number of older workers who are less willing to do part-time work) and industry mix (more employment in industries with higher concentrations of part-time jobs). Such factors are almost certainly playing a role.
Recent analysis by Jon Willis at the Kansas City Fed suggests that the elevated levels of PTER in low-skill occupations may reflect that during the last recession, firms reduced the hours of workers in low-skill jobs more than they cut the number of low-skill jobs. In other words, firms still had some work that needed to get done, probably with peak demand at certain times of the day, and those tasks couldn't readily be outsourced or automated.
As the following chart from Willis's research shows, between 2007 and 2010, low-skill (non-PTER) employment actually increased slightly overall, but the mix of employment shifted dramatically toward part-time.
Since the recession, the pace of (non-PTER) low-skill job creation has been modest (about 20,000 jobs per month compared with 60,000 jobs per month in the years preceding the recession). Initially, this trend helped reduce low-skill unemployment more than the incidence of PTER—one reason why the ratio of PTER to unemployment continued to increase.
But the number of PTER workers in low-skill jobs has since been declining as more people have been able to find full-time jobs. At the current pace of job creation and (net) transition rates out of PTER, Willis estimates it would take until 2020 to return to prerecession levels of low-skill PTER. That seems a reasonable guess to me.
Why All Exchange Rates Are Bad: The economics of exchange rates can be tough sledding. Every now and then, I post on the bulletin board beside my office a quotation from Kenneth Kasa back in 1995: "If you asked a random sample of economists to name the three most difficult questions confronting mankind, the answers would probably be: (1) What is the meaning of life? (2) What is the relationship between quantum mechanics and general relativity? and (3) What's going on in the foreign exchange market. (Not necessarily in that order)."
Sometimes other countries have policies that the value of their currency is lower relative to that of the US dollar. This is bad, because it benefits exporters from those countries and helps them to sell against US companies in world markets.
But other times, countries are manipulating the value of the exchange rate so that the value of their currency is higher relative to the US dollar, like China. This is also bad, as Shelton write in the WSJ: "Whether China is propping up exchange rates or holding them down, manipulation is manipulation and should not be overlooked. ... A country that props up the value of its currency against the dollar may have strategic goals for investing in U.S. assets."
Exchanges rates that move are bad, too. Shelton writes that "free trade should be based on stable exchange rates so that goods and capital flow in accordance with free-market principles." But stable exchange rates are also bad. After all, China is apparently stabilizing its exchange rate at the "wrong" level, and the argument that exchange rate manipulation is a problem clearly implies that many major exchange rates around the world should be reshuffled to different levels.
The bottom line is clear as mud. Exchange rates are bad if they are higher, or lower, or moving, or stable. The goal is that exchange rates should be manipulated to arrive at some perfect level, and then should just stick at that level without any further manipulation, which would be forbidden. This perspective on exchange rates is so confused as to be incoherent. With the perils of explaining exchange rates in mind, let me lay out some alternative facts and perspectives.
Currencies are traded in international markets; indeed, about $5 trillion per day is traded on foreign exchange markets. This amount is vastly more than what is needed for international trade of goods and services (about $24 trillion per year) or for foreign direct investment (which is about $1.0-1.5 trillion per year). Thus, exchange rate markets are driven by investors trying to figure out where higher rates of return will be available in the future, while simultanously trying to reduce and diversify the risks they face if exchange rates shift in a way they didn't expect. Because of these dynamics, exchange rate markets are notoriously volatile. For example, they often react quickly and sharply when new information arises about the possibilities of changes in national-level interest rates, inflation rates, and growth rates.
"As of mid-November, the US dollar has become overvalued by about 11 percent. The prospect of fiscal stimulus and associated interest rate increases under the new US administration risks still further increases in the dollar. The new estimates, all based on October exchange rates, again find a modest undervaluation of the yen (by 3 percent) but no misalignment of the euro and Chinese renminbi. The Korean won is undervalued by 6 percent. Cases of significant overvaluation besides that of the United States include Argentina (by about 7 percent), Turkey (by about 9 percent), Australia (by about 6 percent), and New Zealand (by about 4 percent). A familiar list of smaller economies with significantly undervalued currencies once again shows undervaluation in Singapore and Taiwan (by 26 to 27 percent), and Sweden and Switzerland (by 5 to 7 percent)."
Several points are worth emphasizing here. The exchange rates of the euro, China's renminbi, and Japan's yen don't appear much overvalued. The US dollar does seem overvalued, but the underlying economic reasons aren't mainly about manipulation by other countries. Instead, it's because investor in the turbulent foreign exchange markets are looking ahead at promises from the Trump administration that would lead to large fiscal stimulus and predictions from the Federal Reserve of higher exchange rates, and demanding more US dollars as a result.
Countries around the world have sought different ways to grapple with risks of exchange rate fluctuations. Small- and medium-sized economies around the world are vulnerable to a nasty cycle in which they first become a popular destination for investors around the world, who hasten to buy their currency (thus driving up its value), as well as investing in their national stock and real estate markets (driving up their prices), and also lending money. But when the news shifts and some other destination becomes the flavor-of-the-month as an investment destination, then as investors sell off the currency and their investments in the country, the exchange rate, stock market, and real estate can all crash. This situation can become even worse if the country has done a lot of borrowing in US dollars, because when the exchange rate falls, it becomes impossible to repay those US-dollar loans. The combination of falling stock market and real estate prices, together with a wave of bad loans, can lead to severe distress in the country's financial sector and steep recession. For details, check with Argentina, Mexico, Thailand, Indonesia, Russia, and a number of others.
The International Monetary Fund puts out regular reports describing exchange rate arrangements, like the Annual Report on Exchange Arrangements and Exchange Restrictions 2014. That report points out that about one-third of the countries in the world have floating exchange rates--that is, rates that are mostly or entirely determined by those $5 trillion per day exchange rate markets. About one-eighth of the countries in the world have "hard peg" exchange rate, in which the country either doesn't have its own separate currency (like the countries sharing the euro) or else the countries technically have a separate currency but manage it so that the exchange rate is always identical (a "currency board" arrangement).
The rest of the economies in the world have some form of "soft peg" or "managed" exchange rate policy. These countries don't dare to leave themselves open to the full force and fluctuations of the international exchange rate markets. But on the other hand, they also don't dare lock in a stable exchange rate in a way that can't change, no matter the cross-national patterns of interest rates, inflation rates, and growth rates. Many of these countries are quite aware that the ultra-stable exchange rate known as the euro has not, to put it mildly, been an unmixed blessing for the countries of Europe.
The fundamental issue is that an exchange rate is a price, the price of one currency in terms of another currency. A weaker currency tends to favor exporters, because their production costs in the domestic currency are lower compared to the revenue they gain when selling in a foreign currency. A stronger currency tends to favor importers, because they can afford to buy more goods in the supermarket that is the world economy.
Of course, the reality is that the US economy has all kinds of different players, some of whom would benefit from a stronger exchange rate and some of whom would benefit from a weaker exchange rate. Think about the difference between a firm that imports inputs, uses them in production, and re-exports much of the output, as opposed to a form that imports goods that are sold directly to US consumers. Think about the difference between a worker in a firm that does almost no exporting, but benefits as a consumer from stronger exchange rates, and a worker in a firm that does most of its production in the US and then exports heavily, where the employer would benefit from a weaker exchange rate. Think about a firm which has invested heavily in foreign assets: a weaker US dollar makes those foreign assets worth relatively more in US dollar terms, thus rewarding the firm for its foresight in investing abroad.
Here's one useful way to cut through the confusions about what a higher or lower exchange rate means, which is from work done by economists Gita Gopinath, Emmanuel Farhi, Oleg Itskhoki, who point out that the economic effects of changes in exchange rates are fundamentally the same as a policy that combines changes in value-added and payroll taxes. Specifically, a weaker currency has the same effect as a policy of a policy of raising value-added taxes and cutting payroll taxes by an equivalent amount. This should make some intuitive sense, because a weaker currency makes it harder for buyers (like a higher value-added tax) but reduces the relative costs of domestic production (like a lower payroll tax).
In short, every time the US exchange rate moves, for whatever reason, there will be a mixed bag of those who benefit and those who are harmed. A weaker currency is the economic equivalent of combining a higher tax that hinders consumption, like the higher value-added (or sales) tax, with an offsetting cut in a tax that lowers costs of domestic production, like the lower payroll tax. If the policy goal is to help US exporters, but not to impose costs on US importers and consumers, then seeking a lower US dollar exchange rate is the wrong policy tool. It is a mirage (and a fundamental confusion) to argue that some change in the dollar exchange rate will be all benefits and no costs for the US economy.
Just to be clear, I'm certainly not arguing that exchange rates are never "too high" or "too low"; it's clear that exchange rates are volatile and can have bubbles and valleys.
Nor am I arguing that countries never try to manipulate their exchange rates; indeed, I would argue that every country manipulates its exchange rates in one way or another. If countries allow their exchange rates to float, then when the central bank adjusts interest rates or allows a chance in inflation or stimulates an economy, the exchange rate is going to shift, which is clearly a way in which exchange rates are manipulated by policy. If countries don't let their exchange rates move, that's clearly a form of manipulation. And if countries allow their exchange rates to move, but act to limit big swings in those movements, that is also manipulation.
What I am arguing is that given even a basic notion how exchange rate markets work and the economic forces that affect exchange rates, it is opaque how "non-manipulation" would work. Are exchange rates going to be held stable across countries, even in the face of cross-national economic changes in interest rates, inflation, and growth? A wide variety of experience, including the breakdown of the Bretton Woods agreement in the early 1970s and the current problems with euro, suggest that holding exchange rates stable is impractical over time and can have some very bad consequences. But if exchange rates are going to be allowed to move, then the question arises of who decides when and how much. Most national governments, especially after having watched the euro in action, will want to keep some power over exchange rates. There are serious people who discuss what kind of international agreements and cooperation it would take to have greater exchange rate stability, but it's a hard task, and squawking about how all exchange rates are bad--stronger, weaker, moving, stable--is not a serious answer.
Let's Think Harder About the Role of Globalization in Wage Stagnation: It's disturbing. As we face the probable abrogation of NAFTA, possible trade wars with China, Germany, and others, and the total cluster** that is the Trump administration's policies (if any) toward NATO and Russia, a number of really smart and really well-intentioned people are, I think, making rhetorical--and in some cases substantive--errors that are degrading the quality of the debate and increasing the chances of bad outcomes. And they are doing it while trying to be forces for good, light, human betterment, truth, justice, and the American way...
So let me do some boundary policing here...
Let me ask people--all of whom are wiser than I am, or if not wiser smarter, or if not smarter more knowledgeable--to think about whether they really hold the positions they set forward, and think about whether they have set them forward in a way most calculated to guard against destructive misinterpretation. Today: Larry Summers...
Larry's big point here--the headline--is 100% correct: Revoking Trade Deals Will Not Help American Middle Classes. Hold tight to that.
Larry's second point is also correct: the big deal in terms of the changing shape of the American workforce--and, quite plausibly, changing life chances, the collapse of upward mobility, and wage stagnation--is technology: rampant improvement in manufacturing technology coupled with limited demand, for while nearly all of us want one few of us want too and only a minuscule proportion of us want three refrigerators. That means that if you are hoping to be relatively high up in the wage distribution by virtue of your position as a hard-to-replace cog on a manufacturing assembly line, you are increasingly out of luck. If you are hoping for high blue-collar wages to lift your own via competition, you are increasingly out of luck.
But then Larry goes, I think, rhetorically awry. His third point should be that inequality has been a political creation: those elected to power in America in the 1980s were elected on the platform that America's biggest problem was that it was, economically, too equal a society. Economic equality was strangling entrepreneurship and enterprise. And so they undertook policies to raise inequality. Those policies were successful. But we are still waiting for the flourishing of entrepreneurship and enterprise. He passes over this, not because he does not know this but because he has other fish to fry. Passing over what should have been his third point is, I think, a major rhetorical mistake: it is never good to pass up an opportunity to remind readers that the rise in inequality since 1980 has been something that those who made the Reagan Revolution hoped to accomplish and are proud of.
Bargaining power has flowed to finance and the executive suite and away from the shop- and assembly-floor. Top tax rates have come way down. It could have been otherwise--this is, primarily, a thing that has happened in English-speaking countries. It has happened much less elsewhere. It could have happened much less here.
And then, I think, Larry goes rhetorically awry again by passing over what ought to have been his fourth point. Over and above the decision to put the government's thumb on the scale assisting in the rise of inequality, wage stagnation and manufacturing decline have been driven by bad macroeconomic policies. The consequences of the Reagan deficits were to cream midwestern manufacturing and destroy worker bargaining power in export and import-competing industries. The switch from government surpluses to deficits under George W. Bush had much the same consequences. The low-pressure economies of Volcker, late Greenspan, and Bernanke wreaked immense damage. The strong-dollar policy was kept long past its proper sell-by date. A rich country like the United States ought to be a net lender to abroad, and ought to have a dollar policy that supports that net lending. Larry passes over this as well.
And so, rather than going technology--willed inequality--bad macro policies--globalization, Larry jumps from technology to globalization. Globalization thus shows up as the second most important factor affecting middle-class wages and inequality rather than the fourth.
It is at this point that I have, I think, a (rare) substantive disagreement with Larry. And I do acknowledge that when I have substantive disagreements with Larry, I am wrong at least as often as I am right.
Larry sees the coming of globalization as bringing with it a sharp reduction in the market power of American blue-collar workers in mass-production industries, and thus as exerting significant downward pressure on middle class wages and upward pressure on inequality. The live question, he thinks, is how large and significant these pressures have been.
I see it differently. Yes, technology, inequality promotion--union busting, so-called "right to work" laws, stagnant minimum wages, etc.--and lousy macro policies working through their effects on the trade sector have creamed the market bargaining power of American blue-collar workers. But globalization? Globalization's big effect has been to enable the construction of intercontinental value chains and to create a much finer global division of labor. It has greatly weakened the bargaining power of unskilled manufacturing workers here in the United States, yes. But has it done the same to semi-skilled and skilled manufacturing workers? If the United States had imposed barriers to the construction of intercontinental value chains would the semi-skilled and skilled manufacturing workers of the U.S. be better off? Or would they face stronger and more effective competition from firms headquartered in Japan and Europe that had created efficient global value chains?
Unskilled manufacturing jobs are not good jobs. Semi-skilled and skilled manufacturing jobs are. I think that odds are at least 50-50 that Larry has gotten the sign of the effects of globalization on bargaining power wrong for those manufacturing jobs that are worth keeping.
Thus I don't think that Larry should concede that "the advent of global supply chains has changed production patterns in the US" in a manner adverse to the interests of blue-collar and middle-class American workers. I think that might be true, but equally probably might be false. I think we need to think harder about this...
Why do Republicans insist, contrary to the evidence, that tax cuts and deregulation will spur economic growth:
On Economic Arrogance, by Paul Krugman, NY Times: According to press reports, the Trump administration is basing its budget projections on the assumption that the U.S. economy will grow very rapidly over the next decade — in fact, almost twice as fast as independent institutions like the Congressional Budget Office and the Federal Reserve expect. There is, as far as we can tell, no serious analysis behind this optimism; instead, the number was plugged in to make the fiscal outlook appear better.
I guess this was only to be expected from a man who keeps insisting that crime, which is actually near record lows, is at a record high, that millions of illegal ballots were responsible for his popular vote loss, and so on: In Trumpworld, numbers are what you want them to be, and anything else is fake news. ...
The only way we could have a growth miracle now would be a huge takeoff in productivity... This could, of course, happen: maybe driverless flying cars will arrive en masse. But it’s hardly something one should assume for a baseline projection.
And it’s certainly not something one should count on as a result of conservative economic policies. ...
The ... belief that tax cuts and deregulation will reliably produce awesome growth isn’t unique to the Trump-Putin administration. We heard the same thing from Jeb Bush (who?); we hear it from congressional Republicans like Paul Ryan. The question is why. After all, there is nothing — nothing at all — in the historical record to justify this arrogance. ...
The evidence ... is totally at odds with claims that tax-cutting and deregulation are economic wonder drugs. So why does a whole political party continue to insist that they are the answer to all problems?
It would be nice to pretend that we’re still having a serious, honest discussion here, but we aren’t. At this point we have to get real and talk about whose interests are being served.
Never mind whether slashing taxes on billionaires while giving scammers and polluters the freedom to scam and pollute is good for the economy as a whole; it’s clearly good for billionaires, scammers, and polluters. Campaign finance being what it is, this creates a clear incentive for politicians to keep espousing a failed doctrine, for think tanks to keep inventing new excuses for that doctrine, and more.
And on such matters Donald Trump is really no worse than the rest of his party. Unfortunately, he’s also no better.
Report: Trump transition ordered government economists to cook up rosy growth forecasts: As the White House staff tries to put together a budget for President Donald Trump, they face a fundamental problem. Trump has promised to cut taxes, increase spending on the military and infrastructure, and avoid cuts to Social Security and Medicare. The only way to do that without producing an exploding budget deficit is to assume a big increase in economic growth.
Deep into his story about Trump budget hijinks, Timiraos reveals that “what’s unusual about the administration’s forecasts isn’t just their relative optimism but also the process by which they were derived.” Specifically, what’s unusual about them is that they weren’t derived by any process at all. Instead of letting economists build a forecast, Trump’s budget was put together with “transition officials telling the CEA staff the growth targets that their budget would produce and asking them to backfill other estimates off those figures.” ...
NAIRU bashing: The NAIRU is the level of unemployment at which inflation is stable. Ever since economists invented the concept people have poked fun at how difficult to measure and elusive the NAIRU appears to be, and these articles often end with the proclamation that it is time we ditched the concept. Even good journalists can do it. But few of these attempts to trash the NAIRU answer a very simple and obvious question - how else do we link the real economy to inflation? ...
The NAIRU is one of those economic concepts which is essential to understand the economy but is extremely difficult to measure. ...
While we should not be obsessed by the 1970s, we should not wipe it from our minds either. Then policy makers did in effect ditch the NAIRU, and we got uncomfortably high inflation. In 1980 in the US and UK policy changed and increased unemployment, and inflation fell. There is a relationship between inflation and unemployment, but it is just very difficult to pin down. For most macroeconomists, the concept of the NAIRU really just stands for that basic macroeconomic truth. ...
The Silence of the Hacks, by Paul Krugman, NY Times: The story so far: A foreign dictator intervened on behalf of a U.S. presidential candidate — and that candidate won. Close associates of the new president were in contact with the dictator’s espionage officials during the campaign, and his national security adviser was forced out over improper calls to that country’s ambassador...
Meanwhile, the president seems oddly solicitous of the dictator’s interests, and rumors swirl about his personal financial connections to the country in question. ...
Maybe ... it’s all perfectly innocent. But if it’s not innocent, it’s very bad indeed. So what do Republicans in Congress, who have the power to investigate the situation, believe should be done?
Paul Ryan ... says that Michael Flynn’s conversations with the Russian ambassador were “entirely appropriate.”
Devin Nunes, the chairman of the House Intelligence Committee, angrily dismissed calls for a select committee to investigate contacts during the campaign: “There is absolutely not going to be one.”
Jason Chaffetz, the chairman of the House oversight committee — who hounded Hillary Clinton endlessly over Benghazi — declared that the “situation has taken care of itself.”
Just the other day Republicans were hot in pursuit of potential scandal, and posed as ultrapatriots. Now they’re indifferent to actual subversion and the real possibility that we are being governed by people who take their cues from Moscow. ...
The point is that you can’t understand the mess we’re in without appreciating not just the potential corruption of the president, but the unmistakable corruption of his party — a party so intent on cutting taxes for the wealthy, deregulating banks and polluters and dismantling social programs that accepting foreign subversion is, apparently, a small price to pay. ...
So how does this crisis end? It’s not a constitutional crisis — yet. But Donald Trump is facing a clear crisis of legitimacy. ... And nothing he has done since the inauguration allays fears that he is in effect a Putin puppet.
How can a leader under such a cloud send American soldiers to die? How can he be granted the right to shape the Supreme Court for a generation? ...
The thing is, this nightmare could be ended by a handful of Republican legislators willing to make common cause with Democrats to demand the truth. And maybe there are enough people of conscience left in the G.O.P.
But there probably aren’t. And that’s a problem that’s even scarier than the Trump-Putin axis.
Low real interest rates: depression economics, not secular trends: Real interest rates have fallen by around 5 percentage points since the 1980s. Many economists attribute this to “secular” trends such as a structural slowdown in global growth, changing demographics and a fall in the relative price of capital goods which will hold equilibrium rates low for a decade or more (Eggertsson et al., Summers, Rachel and Smith, and IMF). In this blog post, I argue this explanation is wrong because it’s at odds with pre-1980s experience. The 1980s were the anomaly (chart A). The decline in real rates over the 1990s and early 2000s simply reflected a return to historical norms from an unusually high starting point. Further falls since 2008 are far more plausibly related to the financial crisis than secular trends.
Chart A: US 1 year real interest rates since 1900
Source: Robert Shiller and author’s calculations Note: Simple estimate of real rates using 1-year US treasury bill converted to a real yield using the year-ahead CPI outturn. Model-based estimates of short and long-term real interest rates show similar trends to the above chart (for example, see IMF).
Do secular trends affecting real interest rates fit the data before the 1980s?
Studies proposing a secular fall in real interest rates have generally taken the 1980s as their starting point. However, the 1980s appear to be an anomaly, as real interest rates were well above rates observed earlier in the 20th century. The secular trends proposed to be causing declining real rates since the 1980s do not fit the data beforehand. ...
... It would not be the first time that economists had fallen into the trap of assuming growth and interest rates would remain permanently lower for longer as a result of secular trends following a large financial crisis. In the late 1930s, Alvin Hansen developed the term “secular stagnation” to describe his concerns that structural factors such as stagnant technological development and weaker population growth prospects would weigh on growth permanently. We know now that these concerns over secular trends proved misplaced, and played little role in weaker growth. But there is large uncertainty over the length and depth of the slowdown in growth following a broad-based financial crisis of the severity seen in 2008. The Great Depression was only ended by rearmament and war, but other financial crises have seen recoveries at or before the 10-year mark. Are we now at a point in which the effects of the 2008 crisis on interest rates may begin to wear off?
Jeb Hensarling's Alternative Facts: House Financial Services Committee Chairman Jeb Hensarling (R-Texas 5th) has an alternative fact problem. In a Wall Street Journal op-ed Hensarling alleged that "Since the CFPB’s advent, the number of banks offering free checking has drastically declined, while many bank fees have increased. Mortgage originations and auto loans have become more expensive for many Americans.”
The problem with these claims? They are verifiably false. Free checking has become more common, bank fees have plateaued after decades of steep increases, and both mortgage rates and auto loan rates have fallen. One can question how much any of these things are causally related to the CFPB, but using Hensarling's logic, the CFPB should be commended for expanding free checking and bringing down mortgage and auto loan rates. Hmmm.
Below the break I go through each of Chairman Hensarling's claims and demonstrate that each one is not only unsupported, but in fact outright contradicted by the best evidence available, general FDIC and Federal Reserve Board data. ...
...Bottom line: Jeb Hensarling's claims about the CFPB are based on a set of utterly concocted alternative facts. This is not the way we should be making policy.
The problem with Puzder as Labor Secretary: Donald Trump’s pick for secretary of labor, Andrew Puzder, is scheduled to undergo confirmation hearings Thursday before the Senate Health, Education, Labor and Pensions Committee. Prior to his nomination, Puzder was the CEO of CKE Restaurants, the parent company of fast-food chains Hardee’s and Carl’s Jr.
Democrats and other critics of Puzder’s nomination have raised concerns about Puzder’s employment of an undocumented housekeeper (a transgression that has disqualified nominees of previous administrations). But for me, the biggest issue is the extent to which he can fulfill the Labor Department’s own stated mission, to be an advocate for labor...
It ends with:
...that’s a portrait of a “Secretary of Business Owners” rather than a “Secretary of Labor.” In this time of rising inequality, stagnant wages and increasing economic insecurity due to globalization and technological change, workers need someone to protect their interests, someone willing to work endlessly to improve all aspects of their working lives.
President Trump promised workers that he would stand up for them and bring decent jobs to regions of the country that have struggled in recent years. In my eyes, the nomination of Puzder for labor secretary betrays that promise, and to me, that’s reason enough that he should not be confirmed.
The idea behind supply-side policy is to encourage more investment, more labor effort and technological innovation through changes in the tax code and regulatory structure.
Have these policies been successful in the past? Are some types of policies better than others at spurring economic growth? To answer those questions, it’s useful to put supply-side policies into broad categories...
On inequality in China: With Trump and Brexit, the Western-type democratic model is under fire. The Chinese media are having a field day. In column after column, the Global Times (official daily newspaper) condemns the explosive cocktail of nationalism, xenophobia, separatism, TV-reality, vulgarity and ‘money reigns supreme’, the outcome of the so-called free elections and the wonderful political institutions which the West would like to impose on the world. No more lessons!
Recently the Chinese authorities organised an international colloquium on ‘The Role of Political Parties in Global Economic Governance’. The message sent to the colloquium by the Chinese Communist Party (CCP) was perfectly clear. Reliance on solid intermediary institutions such as the CCP (which includes 90 million members, or roughly 10% of the adult population, almost as many as the number of voters in the American or French primaries) enables the organisation of discussions and decision-making and the design of a model for stable, harmonious and duly considered development in which identity conflicts can be overcome.
By so doing, the Chinese regime may well be over-confident. The limits of the model are well known, beginning with the total lack of transparency and the ferocious repression suffered by all those who condemn the opacity of the regime. ...
One important but underappreciated aspect of the SEP is that its projections are based on each individual's assessment of appropriate monetary policy. Each FOMC participant writes down what he or she regards as the appropriate path for policy. They do not write down what they expect the Committee to do. Yet the public often misinterprets the interest rate paths we write down as a projection of the Committee's policy path or a commitment to a particular path.
The interest rate projections in the SEP do not represent the Committee’s forecast because there is no such forecast. And they certainly do not represent a policy commitment. It is often easy, however, to use the shorthand of referring to the median of the SEP projections as the Fed’s forecast, which is why we fall in the habit of doing so. It is important to realize, however, that this is not an official forecast, and even if it were, it can change over the year so it is not a promise.
My preference is to view the median SEP projection as a baseline to assess policy shifts throughout the year. For instance, I do not believe that incoming data suggests that the Fed will raise its projection relative to the baseline at the upcoming March FOMC meeting. In other words, the median projection is not likely to shift from three to four hikes. This further suggests that given the Fed’s predilection to delay rate hikes in favor of further labor market gains, there is no pressing reason for the Fed to hike in March. They still have plenty of time to raise rates three times this year if necessary and the data do not suggest they need to move early to act on the possibility of needing four rate hikes this year. So no rate hike is likely in March.
A second point from Fischer:
Figure 2 reproduces panels from the April 2011 Tealbook that show the staff's baseline forecast--the solid black line--as well as prescriptions from three simple policy rules that were generated using the FRB/US model. The panel on the left shows the paths for the federal funds rate, while the panels on the right show the implications of those policy prescriptions for the unemployment rate and core PCE (personal consumption expenditures) price inflation, respectively…
… How does the FOMC choose its interest rate decision? Fundamentally, it uses charts like those shown in figure 2 as an important input into the discussion. And in their discussion, members of the FOMC explain their policy choices, and try to persuade other members of the FOMC of their viewpoints.
An important takeaway here is that the Fed makes monetary policy decisions on the basis of a medium term forecast. In other words, they tailor policy to meet their objectives over the medium term. This stands in contrast with criticism that the Fed either only sees the short-term outcomes of their actions or that they base policy only on the last piece of data. In reality, they are incorporating that most recent data into the medium term forecast and adjusting policy appropriately.
This process, however, is challenging for the public to understand. Moreover, I do not think the Fed has spent sufficient time explaining their actions in terms of the forecast. I suspect that the Fed may not be doing itself any favors with the opening paragraph of the FOMC statement, which is backwards-looking in nature and portrays the impression that the most recent data is the basis of policymaking. I thus appreciate that Fischer is using charts like these to explain policy choices and hope to see more of it in the future.
A final point from Fischer:
As the August 2011 meeting illustrates, the eureka moment I thought I had 50-plus years ago was a chimera. Why is that? First, the economy is very complex, and models that attempt to approximate that complexity can sometimes let us down. A particular difficulty is that expectations of the future play a critical role in determining how the economy reacts to a policy change. Moreover, the economy changes over time--this means that policymakers need to be able to adapt their models promptly and accurately in real time. And, finally, no one model or policy rule can capture the varied experiences and views brought to policymaking by a committee. All of these factors and more recommend against accepting the prescriptions of any one model or policy rule at face value.
The Fed relies on models, but not only models. Moreover, those models, or the underlying components of those models, such as the natural rate of interest, change over time. This is not a weakness of policymaking, it is a strength. The Fed responds to a ;changing economy. It is not possible to place the Fed in the straightjacket of a simplistic Taylor Rule and expect good outcomes for the economy. Clearly this is intended to push back at ongoing efforts to limit the Fed’s independence.
Bottom Line: Read Fischer’s speech for a greater understanding of the interplay between models, forecasts, data and judgment that governs the Fed’s policy choices.
If Trump Stacks Its Board, He Politicizes the Fed and Demeans Its Independence: Daniel Tarullo announced on Friday that he is resigning from the Federal Reserve Board of Governors in early April, nearly five years before his term expires on January 31, 2022. Governor Tarullo, who was appointed by President Obama in 2009, led the effort to plug the holes in financial regulation that allowed the housing bubble and financial panic to occur. So his resignation comes at an inopportune time for those of us worried about Trump’s plans for wholesale deregulation of the financial sector and the vulnerability to another financial crisis that comes with it.
Trump could also have a large impact on how the Fed conducts monetary policy..., the Fed could be permanently damaged...
Ignorance Is Strength. by Paul Krugman, NY Times: When I travel to Asia, I’m fairly often met at the airport by someone holding a sign reading “Mr. Paul.” Why? In much of Asia, names are given family first, personal second — at home, the prime minister of Japan is referred to as Abe Shinzo. And the mistake is completely forgivable when it’s made by a taxi driver picking up a professor.
It’s not so forgivable, however, if the president ... makes the same mistake when welcoming the leader of one of our most important economic and security partners. But there it was: Donald Trump referring to Mr. Abe as, yes, Prime Minister Shinzo.
Mr. Abe did not, as far as we know, respond by calling his host President Donald.
Trivial? Well, it would be if it were an isolated instance. But it isn’t. What we’ve seen instead over the past three weeks is an awesome display of raw ignorance on every front. Worse, there’s no hint that either the White House or its allies in Congress see this as a problem. They appear to believe that expertise, or even basic familiarity with a subject, is for wimps; ignorance is strength. ...
And that is, of course, the point. Competent lawyers might tell you that your Muslim ban is unconstitutional; competent scientists that climate change is real; competent economists that tax cuts don’t pay for themselves; competent voting experts that there weren’t millions of illegal ballots; competent diplomats that the Iran deal makes sense, and Putin is not your friend. So competence must be excluded.
At this point, someone is bound to say, “If they’re so dumb, how come they won?” Part of the answer is that disdain for experts — sorry, “so-called” experts — resonates with an important part of the electorate. Bigotry wasn’t the only dark force at work in the election; so was anti-intellectualism, hostility toward “elites” who claim that opinions should be based on careful study and thought. ...
In some ways this cluelessness may be a good thing: malevolence may ... be tempered by incompetence. It’s not just the court defeat over immigration; Republican ignorance has turned what was supposed to be a blitzkrieg against Obamacare into a quagmire, to the great benefit of millions. And Mr. Trump’s imploding job approval might help slow the march to autocracy.
But meanwhile, who’s in charge? Crises happen, and we have an intellectual vacuum at the top. Be afraid, be very afraid.
Is our basic income really universal?: After our call « For a credible and bold basic income » launched by a group of ten researchers (Antoine Bozio, Thomas Breda, Julia Cagé, Lucas Chancel, Elise Huillery, Camille Landais, Dominique Méda, Emmanuel Saez, Tancrède Voituriez), we received considerable support and also, of course, questions and requests for clarification. The first question was: Given that the system of a basic income which we propose does not defend the idea of an identical monthly allowance paid to each individual, is it really universal? The question is legitimate and I would like to reply here as clearly as possible. ...
...The goals of the candidates standing in the presidential primary elections launched by the left must be judged on the relevance of their proposals, their impact on the recovery of economic activity and employment in France, and their effect on social cohesion in the country.
The economic and fiscal policy adopted during François Hollande’s five-year term of office has prevented France from engaging in the dynamics of strong and sustainable economic recovery. The choice made in 2012 to forcibly impose an increase in taxes and reduce deficits in a period of recession killed any hope of growth. The numerous warnings launched in this respect remained unanswered. Those who bear the responsibility for this disastrous policy and who claim to have had no part in it must be held to account today.
In the ongoing debates in the primaries, discussions are crystallizing around a new issue: a basic income (in French sometime referred to as a « revenu universel » or « revenu de base »). Benoît Hamon is faced with the accusation that he is incompetent to govern because he introduced this proposal. According to his critics, the introduction of a basic income would mean bankruptcy for France. The accusation is easily made but over-hasty. Economically and socially, a basic income can be both relevant and innovative. It could be quite the reverse of the fiscal and budgetary choices made in 2012 and in particular the incredibly complex and inefficient tax credit for competitivity and employment, not to mention the exoneration of overtime which even the right wing has abandoned and Manuel Valls would like to bring back today. Properly designed and defined, the basic income can be a structuring element in a new foundation for our social model. ...
When the Fire Comes, by Paul Krugman, NY Times: ...there’s a pretty good chance that sometime over the next few years something nasty will happen — a terrorist attack on a public place, an exchange of fire in the South China Sea, something. Then what?
After 9/11, the overwhelming public response was to rally around the commander in chief. Doubts about the legitimacy of a president who lost the popular vote and was installed by a bare majority on the Supreme Court were swept aside. Unquestioning support for the man in the White House was, many Americans believed, what patriotism demanded. ...
Unfortunately, the suspension of critical thinking ended ... badly. The Bush administration exploited the post-9/11 rush of patriotism to take America into an unrelated war, then used the initial illusion of success in that war to ram through huge tax cuts for the wealthy.
Bad as that was, however, the consequences if Donald Trump finds himself similarly empowered will be incomparably worse. ...
Mr. Trump’s attack on Judge James Robart, who put a stay on his immigration ban, was ... unprecedented. ... The really striking thing about Mr. Trump’s Twitter tirade, however, was his palpable eagerness to see an attack on America, which would show everyone the folly of constraining his power... What we see here is the most powerful man in the world blatantly telegraphing his intention to use national misfortune to grab even more power. And the question becomes, who will stop him?
Don’t talk about institutions, and the checks and balances they create. Institutions are only as good as the people who serve them. Authoritarianism, American-style, can be averted only if people have the courage to stand against it. So who are these people?
It certainly won’t be Mr. Trump’s inner circle. It won’t be Jeff Sessions, his new attorney general... It might be the courts — but Mr. Trump is doing all he can to delegitimize judicial oversight in advance.
What about Congress? Well..., maybe, just maybe, there are enough Republican senators who really do care about America’s fundamental values to cross party lines in their defense. But given what we’ve seen so far, that’s just hopeful speculation.
In the end, I fear, it’s going to rest on the people — on whether enough Americans are willing to take a public stand. We can’t handle another post-9/11-style suspension of doubt about the man in charge; if that happens, America as we know it will soon be gone.
Three reasons we’re not yet at full employment: It is often asserted that the U.S. labor market, where unemployment has been at or below 5 percent since late 2015, has reached full employment. But I’ve got three reasons we’re not yet quite there yet:
— the underemployment employment rate is still too high;